Optimal Dynamic Taxation with Indivisible Labour
AbstractIn this Paper, we take the field of optimal dynamic taxation further in two directions. Using a model with invisible labour, as in Hansen (1986) and Rogerson (1988), we first explore the short-run dynamics of the capital-income tax, particularly whether the tax, under the second-best programme, goes to zero in finite or infinite time. We derive two classes of preferences for which the optimal capital tax reaches zero in a finite time. Second, we ask what preference structures will leave labour untaxed at all times? An exponential preference structure is derived, for which labour is untaxed both in the short and long run.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4190.
Date of creation: Jan 2004
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Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-02-29 (All new papers)
- NEP-DGE-2004-02-29 (Dynamic General Equilibrium)
- NEP-MAC-2004-02-29 (Macroeconomics)
- NEP-PBE-2004-02-29 (Public Economics)
- NEP-PUB-2004-02-29 (Public Finance)
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